Our senior clients suffered a big disappointment in January – after years of getting a “raise” in their social security benefit, alas, there was no cost-of-living increase for 2016.
And just why was the cost-of-living adjustment withheld this time? As Jonathan Peterson writes in the AARP Bulletin, “The consumer price index for urban wage earners and clerical works did not rise between the third quarter of 2014 and the third quarter of 2015.”  In fact, Peterson adds, lower gas prices pushed the index into negative territory.

“Hey!” critics are shouting.  “That’s fine for workers, but what about the effect of rising prices on retirees?”  The sample on which the measurement is based excludes families whose main source of income is Social Security or private pensions.

Older consumers spend more than younger people do, Peterson emphasizes, on three critical items:

  • Health care
  • Food
  • Housing

Older consumers spend less on:

  • Education
  • Clothes

AARP’s position is that Social Security should use an inflation index that more accurately reflects the spending patterns of older consumers.  Instead of relying on the CPI-W (the index based on wage earners and clerical workers), Social Security ought to use the experimental index CPI-E, which places more weight on healthcare and housing.

The CPI-E has increased at .2% a year faster than the CPI-W, and, had it been considered this time around, would have resulted in a .6% increase in benefits for 2016, around $100 a year for the average senior retiree.

The purpose of the COLA, the Social Security Administration explains, is to ensure that the purchasing power of Social Security benefits is not eroded by inflation. But, what if the definition of inflation doesn’t fit senior citizens? That, says AARP, is the question!

– by  Corinna A. Smith of Rebecca W. Geyer & Associates